- Q1 Net revenue of $2.4 billion, up 5%
over last year
- Q1 Diluted EPS of $1.84, up 16% over
last year; Q1 Adjusted EPS of $2.22, up 8% over last year
- Q1 Free Cash Flow of $162 million, up
188% over last year
- 2017 Adjusted EPS guidance updated to
$9.20 to $9.60, up 4% to 9% over 2016
Laboratory Corporation of America® Holdings (LabCorp® or the
“Company”) (NYSE: LH) today announced results for the first quarter
ended March 31, 2017, and updated 2017 guidance.
“We made strong progress on our enterprise-wide initiatives and
turned in an outstanding performance in the Diagnostics business
during the quarter,” said David P. King, chairman and chief
executive officer. “Customers continued to embrace our integrated
solutions, as evidenced by two major health system partnerships, a
record number of study wins based on combined data, and strong
growth in companion diagnostics. We also delivered strong growth in
enterprise revenue, adjusted EPS, and free cash flow, and we
returned $150 million to shareholders through share repurchases. In
the LabCorp Diagnostics business, we had excellent revenue growth,
with significant increases in both total and organic volume and
revenue per requisition, leading to expansion of our
industry-leading margins. Despite mixed results in our Covance Drug
Development business, we saw strong orders, an improved book to
bill ratio and solid progress in the clinical business.”
Consolidated Results
Net revenue for the quarter was $2.41 billion, an increase of
4.9% compared to $2.29 billion in the first quarter of 2016. The
increase in net revenue was due to strong growth in LabCorp
Diagnostics, partially offset by the negative impact of foreign
currency translation of approximately 40 basis points on a
consolidated basis. Organic revenue growth (net revenue growth less
revenue from acquisitions for the first twelve months after the
close of each acquisition) was 2.7% on a constant currency
basis.
Operating income for the quarter was $332.7 million, or 13.8% of
net revenue, compared to $299.5 million, or 13.0%, in the first
quarter of 2016. The increase in operating income and margin were
primarily due to price, mix, acquisitions and productivity as well
as lower restructuring charges and special items, partially offset
by higher personnel costs in Covance Drug Development. The Company
recorded restructuring charges and special items of $11.0 million
in the quarter, compared to $29.3 million during the same period in
2016. Adjusted operating income (excluding amortization of $47.6
million, restructuring charges and special items) for the quarter
was $391.3 million, or 16.2% of net revenue, compared to $373.1
million, or 16.3%, in the first quarter of 2016.
Net earnings in the quarter were $192.2 million, compared to
$164.1 million in the first quarter of 2016. Diluted EPS were $1.84
in the quarter, an increase of 16.5% compared to $1.58 in the same
period in 2016. Adjusted EPS (excluding amortization, restructuring
charges and special items) were $2.22 in the quarter, an increase
of 8.3% compared to $2.05 in the first quarter of 2016.
Operating cash flow for the quarter was $233.8 million, compared
to $127.6 million in the first quarter of 2016. The increase in
operating cash flow was due to higher earnings and improved working
capital management. Capital expenditures totaled $72.2 million,
compared to $71.4 million a year ago. As a result, free cash flow
(operating cash flow less capital expenditures) was $161.6 million,
compared to $56.2 million in the first quarter of 2016.
At the end of the quarter, the Company’s cash balance and total
debt were $365.5 million and $5.9 billion, respectively. During the
quarter, the Company invested $151.8 million in acquisitions, and
repurchased $149.9 million of stock representing approximately 1.1
million shares. The Company had $589.6 million of authorization
remaining under its share repurchase program at the end of the
quarter.
***
The following segment results exclude amortization,
restructuring charges, special items and unallocated corporate
expenses.
First Quarter Segment
Results
LabCorp Diagnostics
Net revenue for the quarter was $1.72 billion, an increase of
8.0% over $1.59 billion for the first quarter of 2016. The increase
in net revenue was driven by acquisitions, price, mix and organic
volume (measured by requisitions). Total volume (measured by
requisitions) increased by 4.3%, of which organic volume was 1.8%
and acquisition volume was 2.5%. Revenue per requisition increased
by 3.8%.
Adjusted operating income for the quarter was $341.0 million, or
19.9% of net revenue, compared to $308.0 million, or 19.4%, in the
first quarter of 2016. The increase in operating income and margin
were primarily due to strong revenue growth and the LaunchPad
business process improvement initiative. LaunchPad remains on track
to deliver net savings of $150 million through the three-year
period ending in 2017.
Covance Drug Development
Net revenue for the quarter was $690.3 million, a decline of
1.8% from $703.1 million in the first quarter of 2016. Excluding
the negative impact of foreign currency translation of 150 basis
points, revenue in the quarter declined by 0.3% year over year. The
decrease in net revenue was primarily due to slower revenue
conversion from the backlog, and the impact of the
previously-discussed cancellation by sponsors of two large clinical
studies in late 2016, for which Covance Drug Development provided
central laboratory services.
Adjusted operating income for the quarter was $83.5 million, or
12.1% of net revenue, compared to $103.2 million, or 14.7%, in the
first quarter of 2016. The decline was primarily due to higher
personnel costs, including targeted strategic investments to
support future growth, partially offset by cost synergies. The
Company remains on track to deliver cost synergies of $100 million
related to the acquisition of Covance through the three-year period
ending in 2017.
In addition, the Company has expanded its LaunchPad initiative
to include Covance Drug Development. This initiative will consist
of two phases implemented over three years. The first phase is
intended to better align Covance Drug Development’s resources with
its near-term outlook. This phase is expected to generate pre-tax
savings of approximately $20 million in 2017 and approximately $45
million on an annualized basis thereafter, with pre-tax charges
primarily related to severance and facility-closure costs expected
to be approximately $30 million in 2017. The second phase will
focus on long-term structural changes designed to create a more
efficient business model for Covance Drug Development. Additional
details on the second phase will be provided later this year.
During the trailing twelve months, net orders and net
book-to-bill were $3.2 billion and 1.15, respectively. Backlog at
the end of the quarter was $5.2 billion, and the Company expects
approximately $2.1 billion of this backlog to convert into revenue
in the next twelve months.
Updated Outlook for 2017
The following updated guidance assumes foreign exchange rates
effective as of March 31, 2017 for the remainder of the year, and
includes the impact of the expansion of LaunchPad in Covance Drug
Development as well as currently anticipated capital allocation,
including acquisitions, share repurchases and debt repayment.
- Net revenue growth of 3.5% to 5.5% over
2016 net revenue of $9.44 billion, which includes the negative
impact from approximately 40 basis points of foreign currency
translation and equates to constant currency revenue growth of 3.9%
to 5.9%. This is 100 basis points lower than the prior guidance of
4.5% to 6.5% due to a decline in expected revenue growth in Covance
Drug Development, partially offset by higher expected revenue
growth in LabCorp Diagnostics.
- Net revenue growth in LabCorp
Diagnostics of 5.0% to 7.0% over 2016 net revenue of $6.59 billion,
which includes the negative impact from approximately 10 basis
points of foreign currency translation and equates to constant
currency revenue growth of 5.1% to 7.1%. This is an increase of 50
basis points over the prior guidance of 4.5% to 6.5% primarily due
to strong organic growth.
- Net revenue growth in Covance Drug
Development is expected to be 0.0% to 2.0% as compared to net
revenue in 2016 of $2.84 billion, which includes the negative
impact from approximately 130 basis points of foreign currency
translation and equates to constant currency revenue growth of 1.3%
to 3.3%. This is 350 basis points lower than the prior guidance of
3.5% to 5.5% primarily due to first quarter results, as well as the
mix of contracted awards won during the quarter.
- Adjusted EPS of $9.20 to $9.60, an
increase of approximately 4% to 9% as compared to $8.83 in 2016.
This is lower than the prior guidance of $9.35 to $9.75 due to the
decline in expected revenue growth.
- Free cash flow (operating cash flow
less capital expenditures) of $925 million to $975 million, an
increase of approximately 3% to 9% over the prior year, unchanged
from prior guidance.
Use of Adjusted Measures
The Company has provided in this press release and accompanying
tables “adjusted” financial information that has not been prepared
in accordance with GAAP, including Adjusted EPS, Adjusted Operating
Income, Free Cash Flow, and certain segment information. The
Company believes these adjusted measures are useful to investors as
a supplement to, but not as a substitute for, GAAP measures, in
evaluating the Company’s operational performance. The Company
further believes that the use of these non-GAAP financial measures
provides an additional tool for investors in evaluating operating
results and trends, and growth and shareholder returns, as well as
in comparing the Company’s financial results with the financial
results of other companies. However, the Company notes that these
adjusted measures may be different from and not directly comparable
to the measures presented by other companies. Reconciliations of
these non-GAAP measures to the most comparable GAAP measures are
included in the tables accompanying this press release.
The Company today is furnishing a Current Report on Form 8-K
that will include additional information on its business and
operations. This information will also be available in the investor
relations section of the Company's website at www.labcorp.com.
Analysts and investors are directed to the Current Report on Form
8-K and the website to review this supplemental information.
A conference call discussing LabCorp's quarterly results will be
held today at 9:00 a.m. Eastern Time and is available by dialing
844-634-1444 (615-247-0253 for international callers). The access
code is 94174133. A telephone replay of the call will be available
through May 9, 2017 and can be heard by dialing 855-859-2056
(404-537-3406 for international callers). The access code for the
replay is 94174133. A live online broadcast of LabCorp’s quarterly
conference call on April 25, 2017 will be available at
http://www.labcorp.com/ or at http://www.streetevents.com/
beginning at 9:00 a.m. Eastern Time. This webcast will be archived
and accessible continuing through April 24, 2018.
About LabCorp®
Laboratory Corporation of America® Holdings (NYSE: LH), an
S&P 500 company, is a leading global life sciences company that
is deeply integrated in guiding patient care, providing
comprehensive clinical laboratory and end-to-end drug development
services. With a mission to improve health and improve lives,
LabCorp delivers world-class diagnostic solutions, brings
innovative medicines to patients faster and uses technology to
provide better care. LabCorp reported net revenues of nearly $9.5
billion for 2016 through the contributions of 52,000 employees in
approximately 60 countries. To learn more about LabCorp, visit
www.labcorp.com, and to learn more about Covance Drug Development,
visit www.covance.com.
This press release contains forward-looking statements including
with respect to estimated 2017 guidance and the impact of various
factors on operating and financial results. Each of the
forward-looking statements is subject to change based on various
important factors, including without limitation, competitive
actions in the marketplace, and adverse actions of governmental and
other third-party payers. Actual results could differ materially
from those suggested by these forward-looking statements. The
Company has no obligation to provide any updates to these
forward-looking statements even if its expectations change. Further
information on potential factors that could affect operating and
financial results is included in the Company’s Form 10-K for the
year ended December 31, 2016, and subsequent Forms 10-Q, including
in each case under the heading risk factors, and in the Company’s
other filings with the SEC. The information in this press release
should be read in conjunction with a review of the Company’s
filings with the SEC including the information in the Company’s
Form 10-K for the year ended December 31, 2016, and subsequent
Forms 10-Q, under the heading MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- End of Text -
- Tables to Follow –
LABORATORY CORPORATION OF AMERICA HOLDINGS AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share data)
For the Three Months Ended March 31 2017
2016 Net revenues $ 2,408.1 $ 2,295.2
Reimbursable out-of-pocket expenses 38.9 72.8
Total revenues 2,447.0 2,368.0 Net cost of revenues
1,604.5 1,517.9 Reimbursable out-of-pocket expenses 38.9
72.8 Total cost of revenues 1,643.4 1,590.7
Gross profit 803.6 777.3 Selling, general and
administrative expenses 419.4 414.3 Amortization of intangibles and
other assets 47.6 44.3 Restructuring and other special charges
3.9 19.2 Operating income 332.7
299.5 Other income (expense): Interest expense (52.4 ) (54.5
) Equity method income, net 2.3 1.4 Investment income 0.3 0.5
Other, net (3.2 ) 6.7 Earnings before
income taxes 279.7 253.6 Provision for income taxes
87.2 89.2
Net earnings
192.5 164.4
Less: Net earnings attributable to the
noncontrolling interest
(0.3 ) (0.3 )
Net earnings attributable to Laboratory
Corporation of America Holdings
$ 192.2 $ 164.1 Basic earnings per
common share $ 1.87 $ 1.61 Diluted earnings
per common share $ 1.84 $ 1.58 Weighted
average basic shares outstanding 102.5 101.6 Weighted
average diluted shares outstanding 104.3 103.8
LABORATORY
CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Dollars in Millions, except per
share data)
March 31, December
31, 2017 2016 ASSETS Current
assets: Cash and cash equivalents $ 365.5 $ 433.6
Accounts receivable, net of allowance for
doubtful accounts of $245.8 and $235.6 at March 31, 2017 and
December 31, 2016, respectively
1,356.9 1,328.7 Unbilled services 220.7 190.0 Inventory 199.8 205.2
Prepaid expenses and other 343.1 321.2 Total current assets 2,486.0
2,478.7 Property, plant and equipment, net 1,720.0 1,718.6
Goodwill 6,502.1 6,424.4 Intangible assets, net 3,469.3 3,400.5
Joint venture partnerships and equity method investments 58.1 57.6
Deferred income tax assets 2.1 2.1 Other assets, net 190.4 165.1
Total assets $ 14,428.0 $ 14,247.0
LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts
payable $ 484.9 $ 508.4 Accrued expenses and other 564.7 595.2
Unearned revenue 184.4 176.0 Current portion of long-term debt
519.2 549.5 Total current liabilities 1,753.2 1,829.1
Long-term debt, less current portion 5,401.9 5,300.0 Deferred
income taxes and other tax liabilities 1,212.4 1,204.9 Other
liabilities 394.3 392.0 Total liabilities 8,761.8 8,726.0
Commitments and contingent liabilities - - Noncontrolling interest
15.5 15.2 Shareholders' equity: Common stock 12.1 12.1
Additional paid-in capital 2,051.1 2,131.7 Retained earnings
5,148.0 4,955.8 Less common stock held in treasury (1,033.4)
(1,012.7) Accumulated other comprehensive income (527.1) (581.1)
Total shareholders' equity 5,650.7 5,505.8 Total liabilities and
shareholders' equity $ 14,428.0 $ 14,247.0
LABORATORY
CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions)
For the For the Three
Months Ended Three Months Ended March 31,
March 31, 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $
192.5 $ 164.4
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 128.1 122.4 Stock compensation 27.7
31.8 Loss / (Gain) on sale of assets 0.5 (8.4 ) Accreted interest
on zero-coupon subordinated notes 0.2 0.5
Cumulative earnings less than
distributions from equity affiliates
0.1 0.2 Deferred income taxes 18.7 18.2 Change in assets and
liabilities: Increase in accounts receivable, net (27.9 ) (105.8 )
Increase in unbilled services (30.0 ) (14.7 ) Decrease in
inventories 4.9 2.4 Increase in prepaid expenses and other (21.9 )
(22.5 ) Decrease in accounts payable (28.0 ) (34.1 ) Increase in
deferred revenue 8.3 19.8 Decrease in accrued expenses and other
(39.4 ) (46.6 ) Net cash provided by operating
activities 233.8 127.6
CASH
FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (72.2 )
(71.4 ) Proceeds from sale of assets 0.8 2.5 Proceeds from sale of
investments - 12.7 Acquisitions of licensing technology (1.2 ) -
Investments in equity affiliates (21.1 ) (2.1 ) Acquisitions of
businesses, net of cash acquired (151.8 ) (93.3 ) Net
cash used for investing activities (245.5 ) (151.6 )
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from
revolving credit facilities 229.7 - Payments on revolving credit
facilities (133.7 ) - Payments on zero-coupon subordinated notes
(30.8 ) - Debt issuance costs - - Payments on long-term lease
obligations (2.2 ) (1.5 ) Noncontrolling interest distributions
(0.3 ) (1.3 ) Deferred acquisition costs (1.4 ) (9.8 ) Net proceeds
from issuance of stock to employees 26.9 11.9 Purchase of common
stock (148.0 ) - Net cash used for
financing activities (59.8 ) (0.7 ) Effect of
exchange rate changes on cash and cash equivalents 3.4
4.6 Net decrease in cash and cash
equivalents (68.1 ) (20.1 ) Cash and cash equivalents at beginning
of period 433.6 716.4 Cash and
cash equivalents at end of period $ 365.5 $ 696.3
LABORATORY CORPORATION OF AMERICA HOLDINGS
Condensed Combined Non-GAAP Pro Forma Segment Information
(in millions)
Three Months EndedMarch
31,
2017 2016
LabCorp
Diagnostics
Net Revenue $ 1,717.9 $ 1,590.6 Adjusted Operating Income $
341.0 $ 308.0 Adjusted Operating Margin 19.9 % 19.4 %
Covance Drug
Development
Net Revenue $ 690.3 $ 703.1 Adjusted Operating Income $ 83.5
$ 103.2 Adjusted Operating Margin 12.1 % 14.7 %
Consolidated
Net Revenue $ 2,408.1 $ 2,293.6 Adjusted Segment Operating
Income $ 424.5 $ 411.1 Unallocated corporate expense $ (33.2 ) $
(38.0 ) Consolidated Adjusted Operating Income $ 391.3 $ 373.1
Adjusted Operating Margin 16.2 % 16.3 %
The Consolidated Net Revenue and Adjusted Segment Operating
Income are presented net of intersegment transaction eliminations.
Covance Drug Development’s results for the three-month period ended
March 31, 2016 excludes the impact from the wind-down of operations
relating to a committed minimum volume contract that expired on
October 31, 2015. Adjusted Operating Income and Adjusted Operating
Margin are Non-GAAP measures. See the subsequent footnotes for
reconciliations of Non-GAAP measures.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures (in
millions, except per share data)
Three Months EndedMarch
31,
Adjusted
Operating Income
2017 2016 Operating
Income $ 332.7 $ 299.5 Acquisition-related costs 4.4 2.9
Restructuring and other special charges 3.9 19.2 Consulting fees
and executive transition expenses - 4.1 Wind-down of minimum volume
contract operations - 1.6 LaunchPad system implementation costs 2.7
1.5 Amortization of intangibles and other assets 47.6
44.3 Adjusted operating income $ 391.3 $ 373.1
Adjusted
EPS
Diluted earnings per common share $ 1.84 $ 1.58 Restructuring and
special items 0.07 0.18 Amortization expense 0.31
0.29 Adjusted EPS $ 2.22 $ 2.05
Free Cash
Flow:
Net cash provided by operating activities $ 233.8 $ 127.6 Less:
Capital expenditures (72.2 ) (71.4 ) Free cash flow $
161.6 $ 56.2
Notes to Reconciliation of Non-GAAP
Financial Measures
1) During the first quarter of 2017, the Company recorded net
restructuring and other special charges of $3.9 million. The
charges included $2.7 million in severance and other personnel
costs along with $1.6 million in costs associated with facility
closures and general integration initiatives. The Company reversed
previously established reserves of $0.4 million in unused severance
reserves.
The Company incurred legal and other costs of $0.9 million
relating to the recently completed acquisitions. The Company also
recorded $2.6 million in consulting expenses relating to fees
incurred as part of its Covance integration costs and compensation
analysis, along with $0.9 million in short-term equity retention
arrangements relating to the acquisition of Covance. In addition,
the Company incurred $2.7 million of non-capitalized costs
associated with the implementation of a major system as part of its
LaunchPad business process improvement initiative (all recorded in
selling, general and administrative expenses).
The after tax impact of these charges decreased net earnings for
the quarter ended March 31, 2017, by $6.9 million and diluted
earnings per share by $0.07 ($6.9 million divided by 104.3 million
shares).
2) During the first quarter of 2016, the Company recorded net
restructuring and other special charges of $19.2 million. The
charges included $4.5 million in severance and other personnel
costs along with $17.0 million in costs associated with facility
closures and general integration initiatives. A substantial portion
of these costs relate to the planned closure of duplicative data
center operations. The Company reversed previously established
reserves of $2.3 million in unused severance reserves primarily as
the result of selling one of its minimum volume contract facilities
to a third party.
The Company incurred additional legal and other costs of $1.6
million relating to the wind-down of its minimum volume contract
operations. The Company also recorded $1.7 million in consulting
expenses relating to fees incurred as part of its Covance
integration costs and compensation analysis, along with $1.2
million in short-term equity retention arrangements relating to the
acquisition of Covance and $4.1 million of accelerated equity
compensation relating to the announced retirement of a Company
executive. In addition, the Company incurred $1.5 million of
non-capitalized costs associated with the implementation of a major
system as part of its LaunchPad business process improvement
initiative (all recorded in selling, general and administrative
expenses).
The after tax impact of these charges decreased net earnings for
the quarter ended March 31, 2016, by $19.0 million and diluted
earnings per share by $0.18 ($19.0 million divided by 103.6 million
shares).
3) The Company continues to grow the business through
acquisitions and uses Adjusted EPS Excluding Amortization as a
measure of operational performance, growth and shareholder returns.
The Company believes adjusting EPS for amortization provides
investors with better insight into the operating performance of the
business. For the quarters ended March 31, 2017 and 2016,
intangible amortization was $47.6 million and $44.3 million,
respectively ($32.4 million and $30.1 million net of tax,
respectively) and decreased EPS by $0.31 ($32.4 million divided by
104.3 million shares) and $0.29 ($30.1 million divided by 103.8
million shares), respectively.
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version on businesswire.com: http://www.businesswire.com/news/home/20170425005824/en/
Laboratory Corporation of America(R) HoldingsInvestors:Scott
Frommer, 336-436-5076Investor@labcorp.comorMedia:Pattie Kushner,
336-436-8263Media@labcorp.com
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